SAP takes steps to simplify pricing and licensing

New bundles make sense, but customers need to get the fine print, one analyst says

It took some time and considerable internal effort, but SAP says it has made good on a pledge to simplify its software pricing and licensing model.

SAP customers for years have said the company's pricing is too complex.

In October 2012, then co-CEO Jim Hagemann Snabe told IDG News Service the company had heard customers' concerns and was working on a fix.

Nearly two years later, SAP has made a series of changes to pricing and licensing, with a final phase completed in July, said Joe LaRosa, vice president of global pricing and commercialization at SAP. The company talked to or surveyed more than 300 customers, along with many SAP account executives, legal personnel and other staff in the course of getting the job done, he added.

"We've come a long way," LaRosa said. "It took a lot of time on our part to do this and we wanted to make sure we don't end up here again." To that end, SAP has put new approval methods and policies in place for licensing and pricing changes, he said. "We don't want this to become complex again."

One big change, which Snabe alluded to in the 2012 interview, is a set of more than 30 new software bundles aimed at certain types of buyers and business processes.

SAP has done bundling before, such as 360 Customer, a package announced in 2012 that focused on CRM (customer relationship management). "What we found out when we rolled it out is that we were trying to sell a bunch of stuff to people who only wanted a piece of it," he said. "It wasn't targeted to any particular buying center, it was too big."

LaRosa used the example of SAP's software for corporate treasurers as an example of its better approach to bundling.

Last year, these customers could buy seven different applications carrying a variety of license metrics, making for a complicated sale and contract.

Now SAP has reduced that application set into two bundles, Treasury Operations and Treasury and Risk, that both use company revenue as a pricing metric.

SAP has also eliminated a number of named user types, while creating new ones, such as Worker, which combines the previous Shop Floor and Maintenance Worker types.

Other changes affect SAP's standard dual licensing model, which involves a core package license along with named user licenses. LaRosa made the analogy of a package being a house, with named user licenses the keys to get inside.

Now, user licenses will be included with package licenses for SAP's customer engagement, Hybris e-commerce and analytics products.

SAP has also determined which products on its sizable price list simply weren't selling, and either removed them or placed them in a bundle, which helped clean up the list, according to LaRosa.

A number of other licensing changes were already publicized by SAP earlier this year, such as subscription pricing for its Hana Enterprise Cloud service, and the inclusion of Fiori mobile applications and the Screen Personas user-interface technology with base application software licenses.

"Net-new" SAP customers are being offered the new pricing, LaRosa said. Existing customers can potentially move to the new system, getting credit for pieces of bundles they've already spent money on, he added.

Some SAP customers aren't happy about the elimination of one user type, Limited Professional, as it provided significant savings over a Professional license, said analyst Ray Wang, founder and chairman of Constellation Research.

"That was one of the thing people liked," said Wang, who has conducted many license negotiations on behalf of clients.

However, the new bundling "makes sense because you're cutting across business processes," Wang said. "That's how customers really want to buy."

It's crucial that SAP customers who buy bundles get a proper breakdown of what they're paying for each element of the software, rather than a single price and stated discount off list, Wang said. "You cannot negotiate a contract without that."

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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